A new kind of house flipper has infiltrated low-income neighborhoods, prompting local governments and agencies to enact more restrictive rules on home flippers capitalizing on distressed homes.
Instead of buying and renovating homes and putting them back up for sale, wholesalers work to put homes under contract and sell to traditional flippers.
However, in the past year, Philadelphia and Oklahoma have required wholesalers to obtain a license, Bloomberg News reported. Arkansas and Illinois passed laws in 2017 and 2019, respectively, to increase regulations on wholesaling.
Advocacy groups and legal aid services allege that wholesalers dupe sellers into signing a contract for far less than market value and then profit off a sale.
Wholesalers are often novice investors that have taken advantage of low interest rates and historically low housing inventory during the pandemic. These flippers have become more popular since the founding of PropStream, a real estate data provider that can help track distressed properties.
Wholesalers also don’t hold real estate licenses, making it difficult for regulators to crack down on the practice.
“I don’t buy houses. I solve problems,” Scott Sekulow, a wholesaler in Atlanta, told the publication, adding he buys homes from clients who can’t afford home renovations or need cash quickly.
Other wholesalers said they were interested in improving neighborhoods and “revitalizing” housing, according to the report.
“If I know that gentrification is going to happen regardless, I would rather it be someone like me making money than some hedge fund,” said Duane Alexander, a software engineer in Atlanta who wholesales on the side. He made around $10,000 on selling a home at a premium to another investor.
Earnings on a fix-and-flip home were more than $66,000 in 2020 — the highest since 2005. Before the pandemic, house flippers weren’t seeing huge returns, but activity remained strong.
[Bloomberg News] — Isabella Farr